Like zombies rising from the grave, bankrupt retailers Circuit City and RadioShack are back and ready to take on Best Buy (NYSE:BBY). But don't worry, it has nothing to fear from their latest incarnations.
We've been down this road before when Best Buy was a much weaker competitor, but now the consumer electronics superstore is a much healthier rival and it seems unlikely the return of two once-defunct retailers will challenge its position.
Circuit City recently announced it will spring to life again on Feb. 15 "with a dynamic, social-focused e-commerce site, along with various concepts of innovative retail stores, and unprecedented e-commerce technology offerings." The new company will focus on e-commerce, mobile, technology, and omnichannel commerce.
That sounds like a lot of glitz, and industry site TWICE reports the business "will include videos, virtual vignettes, search-by-photo, augmented reality and real-time tech support via video chat" that "allow the products to find the consumers."
That may eventually make it a cross between an Apple store and a Best Buy shop, but it will take tentative steps first with kiosks and store-in-store boutiques before opening brick-and-mortar locations.
The Shack is back
RadioShack has been resurrected from bankruptcy protection for the second time, but you have to wonder why it's even bothering.
The second trip through the system decimated what was once a sprawling operation. In addition to its website and warehouse operations, all that will be left of the company that once sported 4,400 stores, will be at most 28 locations (and possibly none) and its dealer network, which consists of several hundred outlets willing to sell RadioShack product. If you've ever been in some of these stores, you realize it's a disappointing, far cry from the sort of stock you used to be able to find.
Worse, its online store doesn't even look like it's trying to compete on price.
Why would customers want to shop Circuit City or RadioShack when they can already get all of this at Best Buy or even Amazon.com? The market analysts at One Click Retail say the e-commerce site captured 44% of all online sales in 2017, with its biggest category being consumer electronics, which brought in some $8.5 billion, a 4% increase over the prior year.
These reborn sites have limited inventory, and even if it's for top-selling products people are looking for, there are other places to buy from.
Best Buy's advantage
Although Best Buy once found itself almost in the same predicament as Circuit City and RadioShack, it was not only able to survive the onslaught of Amazon.com, but thrive, and has emerged as a healthy competitor.
Its initial decision to match Amazon on price while giving customers who came into its stores excellent service meant it had leveled the playing field with the e-commerce king. And because consumers do by and large prefer putting their hands on a product before buying it, Best Buy actually has a competitive edge. No longer did it need to worry about "showrooming," where customers would test products at its stores and then buy them on Amazon. With competitive pricing, it kept those customers to itself.
That has allowed Best Buy to switch from its Renew Blue cost-cutting campaign, which allowed it to shed hundreds of millions of dollars in expenses, to a refreshed Building a New Blue strategy that is focused on operations that develop better omnichannel capabilities. Best Buy now intends to accelerate spending on strategic initiatives in the space, promising to invest approximately $750 million to $800 million in fiscal 2018, up from previous estimates of $700 million.
Circuit City and RadioShack don't appear to have the same sort of financial wherewithal to tackle Amazon.com or Best Buy, let alone both. They may be back from the dead, but that doesn't mean they scare anyone. With Best Buy still trading at a fraction of sales and a reasonable multiple of earnings (19.53), the consumer electronics retailer is still worth buying for your portfolio.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and AAPL. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool has a disclosure policy.